I'm currently using a PIC to control the backlight on an LCD. The backlight is a typical LED backlight used in many LCD's. Currently, I'm controlling the intensity of the backlight with pulse width modulation from the PIC and it works just fine. BUT, the intensity (brightness) is limited by the ability of the PIC to ouput only 25mA. The backlight wants to see 160mA.

I thought about using a relay, but that would only give me two levels of brightness (using a DTDP relay).

You can drive a transistor through a resistor, with PWM from your PIC to drive the backlight LEDs at a higher current. Is 160mA the maximum peak, or maximum continuous current for the LED's? Do you have a link to the data sheet?